newsletter-winter 2016-2017

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Newsletter – Winter 2016/2017

DIE MAUER KOPF?

When the Berlin wall fell, the occidental Germans complained that there

was still a wall separating them from their oriental fellow countrymen, but

now in the head. That is in terms of mentality. Of what are one’s rights and

duties.

That came to mind, as Mr. Tsipras the Greek prime

minister invited for a meeting the leaders of

Portugal, Spain, France, Italy, Malta and Cyprus. In

short, the Club Méditerranée.

(continue on next page...)

PORTUGUESE INSTITUTE FOR ECONOMIC FREEDOM Libertas

INDEX:

Pág.

Message from the

President ...................... .1

Figures ...........................5

Sentences........................7

Articles………………………........8

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Jorge Sá MBA Drucker School

PhD Columbia University Jean Monnet Chair

Professor at Swiss Business School/ AESE(IESE) Linked In: http://www.linkedin.com/in/vasconcellosesa Twitter: https://twitter.com/VasconcelloseSa Website: www.vasconcellosesa.com Articles and diagrams: http://economiadasemana.blogspot.pt

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It is indeed quite meaningful who was and who was not invited. Indicating

unequivocally who Mr. Tsipras thinks he can get along with, who he thinks

speak the same language, as he.

That means that for Mr. Tsipras there are two Europes: different in both

their wealth and in their mentality. And for once Mr. Tsipras is quite right

and nothing better to exemplify that, than to use the leader of the group

(France), as an example, since all other club members are worse in almost

everything.

The France of the “ouis mais” (and recently less and less of the “ouis” and

more and more of the “mais”), ranks 28th in the world in terms of GDP per

capita. By contrast, all other countries which do not belong to the Club Med

(with the exception of the UK and Finland which rank the same) are far

wealthier: Ireland (6th in the world); Luxembourg (10th); Holland (15th);

Sweden (17th); Germany (19th); and so on.

Another indicator enhances further the difference between the two europes:

while France’s external debt is 222% (!) of the GDP, the average of the

non-members of the Club Méditerranée is 150%.

Why? Well, in terms of management quality1 France ranks below Sweden,

Germany, etc. In transparency2 (absence of corruption) France is 23rd in the

world, while Denmark is first, Finland second, Sweden third, Holland fifth,

Germany (ex-aequo with Luxembourg and the UK) is 10th, Belgium is 15th,

Austria 16th and Ireland 18th.

In innovation? France ranks below Sweden, Germany, Finland and

Austria3.

Again, why?


1 Bloom, Nicholas; Van Reenen, John (2010), “Why Do Management Practices Differ across Firms and Countries?”, The Journal of Economic Perspectives, Volume 24, Number 1, pp. 203-224. 2 Corruption Perceptions Index, 2015, Transparency International. 3 World Economic Forum, 2016.

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All these economic development causes (management quality,

transparency, innovation, among others) are highly correlated with

economic freedom, as a competitor is a helper (E. Burke) and if (economic)

power corrupts, absolute power (oligopolies, etc.) corrupts absolutely (Lord

Acron).

And France occupies the 75th place in the world in economic freedom (e.g.

its top personal income rate is 75%). Thus, it should come as no surprise

that, in spite of its large internal market (almost 70 million), centrality in

Europe (the wealthiest economic block in absolute terms) and its influence

in Africa, France is at the bottom of Europe in creation of wealth, but at its

top in external debt.

In short, as the former (?) communist Tsipras knows, there are two

Europe’s. Which do not understand each other.

One based: on freedom (whose price is responsibility); on trust (which

requires character); on civility (which requires education); and on

solidarity (for the sick and the elderly) and that requires productivity.

Another focused on equality (which kills freedom); on consensus (“ouis

mais”) which is spelled me…dio…cri…ty; on dialogue (which if never ends

precludes action); and on fraternity (towards those who do not want to

work). And fraternity is very different from the solidarity, as St. Paul in his

epistles recognized when he said: "brothers, who does not want to work

should also not eat".

And these two Europe’s do not understand each other. They live in different

worlds. They do not share a common core of values, that allows them to

cohabit, surpassing the secondary divergences. They are antagonistic

spirits, not complementary ones.


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The initial root cause is the idiotic idea of using geography to create an

union. To create countries or unions, based on ruler and square is always

pure nonsense. Examples? Yugoslavia, Iraq, Sudan, Africa in general, etc.

Solution? To expel the marginal (countries) from Europe. Thus reinforcing

the persuasive power of the minorities within the rest of the Club Med. Or

simply agree to disagree and create the Confederation of Northern Europe

States (CNES).

And naturally offering to all the current members of the European Union

double nationality: that of their home country and of the Club Med. Or their

home country and of the CNES. The implementation of the double

nationality is not as difficult as it may seem. After all, there are tens of

millions of expatriates around the world.

And the starting point is to elaborate a constitution and elect directly a

president with powers in foreign affairs, defense and homeland security.

The rest is obvious, where to live and where to work does not have to be in

the same place. The world has changed. Distance is dead. But values must

be preserved. And differences in them recognized.

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FIGURES

Figure one

Figure two

Source: Heritage Foundation, 2016

Note:

2016 Curve of economic freedom

A comparison of Economic Freedom and Wealth

R2=0,42

Correlation coefficient = 0,61

Zimbabwe

Eritrea

Liechtenstein

Qatar

Singapore

Portuguese

emigrationVariables

CountriesBusiness

freedom

Trade

freedom

Fiscal

freedom

Government

spending

Monetary

freedom

Investment

freedom

Financial

freedom

Property

rights

Freedom from

corruption

Labor

freedom

5 39 135 144 3 23 3 1 2 7 3

20 1 136 100 4 10 3 3 5 37 4

13 44 161 109 10 23 1 3 11 22 5

22 40 81 134 98 23 3 3 10 34 6

28 10 125 135 7 2 19 3 17 37 8

15 10 155 155 102 2 3 3 14 41 10

18 40 154 131 96 50 19 20 17 1 11

2 10 180 172 20 2 3 1 1 6 12

26 10 173 158 30 2 3 3 8 69 16

10 10 162 152 32 2 19 3 12 134 17

49 10 164 148 33 1 3 3 9 165 19

8 10 151 173 46 10 3 3 3 120 24

11 10 178 169 5 10 3 3 4 121 26

30 10 175 167 49 2 19 3 23 35 28

12 35 172 150 104 34 38 3 5 143 32

44 10 170 153 15 10 19 28 37 126 43

16 10 179 170 26 10 19 20 15 94 44

17 10 167 166 6 50 38 28 32 160 64

33 63 176 171 69 50 19 20 27 160 75

67 92 140 89 113 124 38 54 69 160 80

61 10 171 168 17 10 38 54 71 123 86

109 134 141 129 172 102 72 65 71 125 122

132 125 119 107 62 146 72 92 122 170 139

153 130 35 136 131 132 105 158 170 156 156

184 181 181 174 183 177 181 179 182 184 178

Mozambique

Angola

North Korea

Belgium

Portugal

France

South Africa

Italy

Brazil

Luxembourg

Finland

Sweden

Austria

Norway

Spain

Ireland

United Kingdom

United States

Denmark

Netherlands

Germany

Ranking

10 variables

New Zealand

Switzerland

Australia

Canada

2016

Index of economic freedom ranking, 2016

Source: Heritage Foundation, 2016

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Figure three

0

10

20

30

40

50

60

70

80

90

100

0 10000 20000 30000 40000 50000 60000 70000 80000 90000

Notes: (1) Correlation made with the 168 countries on the corruption perceptions index.(2) Source: IMF, October 2016; Total = 189 countries(3) Source: International Transparency, 2015; Total = 168 countries.

Correlation(1) between the corruption perceptions index and GDP per capita PPP

Corruption perceptions index rating, 2015 (3)

GDP per capita PPP, 2015 (dollars)(2)

Correlation coefficient: 0,78(level of statistical significance= 0)

Each dot represents a

country

Singapore

NorwaySwitzerland

Eritrea

Afghanistan

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SENTENCES

Europe is not based on a

common language, culture and

values … Europe is the result of

plans.

Margaret Thatcher

There are two kinds of

Europeans: the smart ones, and

those who stayed behind.

Henry Louis Mencken

In America everything goes and

nothing matters, while in

Europe nothing goes and

everything matters.

Philip Roth

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ARTICLES

We thank the Cato Institute, the Heritage Foundation, Mises Institute, and the Future of Freedom Foundation for the articles they have sent and enable us to share with our readers.

By Michael D. Tanner

The short-term shock and turmoil of Brexit will eventually pass. Markets will

stabilize as investors realize that the scare campaign by the anti-Brexit

establishment was vastly overblown. The Britain of today is largely the same as the

Britain of a week ago.


SUBJECT

FROM

(29th June, 2016)

1. Brexit: What Now?

Index of the six articles

1. Bretix: What Now?, Michael D. Tanner, Cato Institute, 29th June 2016 (pag.

8)

2. Post-Brexit: U.K. can lead Europe to greater economic freedom, James M.

Roberts and Diego Sánchez de la Cruz, The Heritage Foundation, 9th August

2016, (pag. 11)

3. Brexit and the bureaucracy beast, Carmen Elena Dorobăț, Mises Institute,

16th November, 2016 (pag. 15)

4. How government regulation makes us poorer, Per Bylund, Mises Institute,

26th December, 2016 (pag. 17)

5. Seven principles for free government, John W. Whitehead, The Future of

Freedom Foundation, 8th November, 2016 (pag. 21)

6. Castro’s legacy, Juan Carlos Hidalgo, Cato Institute, 26th November 2016

(pag. 26)

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The big question, though, remains unanswered: Will Britain seize on this

opportunity to fundamentally remake its economic policies in a way that will

increase economic growth? Or will it simply substitute British bureaucracy, taxes,

and regulations for European ones?

Despite the vote to leave the EU, Britain will eventually negotiate a trade deal with

the European bloc. After all, close to half of Britain’s trade is with the EU, and the

U.K. is one of the top trading partners for many member states. Whatever the

bluster and hurt feelings, neither side is going to sacrifice those markets. Britain

could, for instance, follow the lead of countries like Norway and Switzerland, and

join the European Economic Area (EEA) while remaining outside the EU. This would

allow Britain to continue to benefit from the free movement of people and goods

within Europe, without subjecting itself to stifling EU bureaucracy and regulations in

agriculture and other industries.

But Britain now has an opportunity to expand its trade opportunities. As Daniel

Hannan, a British member of the European Parliament, has pointed out, the EU is

not really a free-trade zone but rather a “customs union,” which regulates tariffs for

members but erects trade barriers against countries outside the bloc.

For example, India has been trying to negotiate a free-trade agreement with the EU

since 2007, but the protectionist bureaucrats in Brussels have thrown up one

roadblock after another. Britain can now steal a march on the rest of Europe by

negotiating a separate deal with India.

There is also talk about a trade deal or deals with Anglosphere allies like the United

States, Canada, Australia, and New Zealand. The Obama administration has,

unfortunately, declared that Britain would have to go to the back of the “queue” —

presumably behind the proposed Trans-Atlantic Trade and Investment Partnership

— in any trade negotiations, but there is no reason for the next administration to

stick to that policy.


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Beyond trade, Britain now has the chance to cast off the dead weight of European

tax and regulatory policy and build a pro-growth economy. For instance, freed from

the EU’s VAT directive, Britain could significantly reduce its value-added tax.

Indeed, no longer bound by the EU’s belief in tax harmonization, Britain can

become the low-tax capital of Europe.

Likewise Britain can dump many of the regulations currently imposed by Brussels.

Those regulations include binding renewable-energy targets, working-time

directives, collective redundancy directives, and regulations on alternative

investments, among others. EU-imposed regulations are estimated to cost Britain

at least 2 percent of GDP annually, and possibly as much as 6 percent.

Britain also has a new opportunity to look at spending and the overall size of

government. It is worth noting that government spending as a percentage of GDP

today is almost what it was when the EU was established in 1993 (roughly 42 to 43

percent). That leaves a lot of room for cutting.

In short, Britain has a unique opportunity to reform its sclerotic welfare state.

But there is reason to worry. For example, ending British contributions to the EU

will save British taxpayers roughly £13 billion annually. But rather than use those

savings to reduce taxes, anti-EU politicians have promised to pour that money back

into the moribund National Health Service and other government programs. Indeed,

the pro-Brexit side has already made so many promises that it could result in more

spending. At the same time, Brexit forces have offered nothing in the way of a tax-

or regulatory-reform agenda.

Britain has declared its independence from the EU bureaucracy, with all its high

taxes, heavy regulation, and protectionism. But while replacing bad EU policies with

bad British policies may be a victory for sovereignty, it will do little to help the

average Briton unless the politicians have a change of heart.

That’s a lesson U.S. populists should keep in mind.

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By James M. Roberts and Diego Sánchez de la Cruz

Fear-mongering pundits and politicians campaigning for the “Remain” campaign

had predicted dire consequences for the United Kingdom if British voters decided to

leave the European Union. Developments in the weeks following the June 23

decision by a solid majority to “Leave” have proven the Remain-side alarmists

wrong. As “Vote Leave” proponent and Member of the European Parliament for the

U.K. Daniel Hannan writes, “Britain’s jobs miracle has continued, with more people

in work than ever.” Far from leaving, however, some multinational companies that

had urged a “Remain” vote have made significant new investments in the U.K.

Among EU countries, only the U.K., Ireland, and Estonia ranked in the top ten in

The Heritage Foundation’s annual 2016 Index of Economic Freedom. With the

departure of the U.K., then, the EU will lose one of its few economic freedom role

models—especially in the Index pillar areas of Rule of Law and Open Markets.

The Challenge Ahead

For European countries remaining in the EU, the challenge going forward is twofold:

1. Negotiating the most mutually beneficial post-Brexit U.K.–EU economic

relationship that preserves inter alia cost-effective EU access to global

financial services in London; and

2. Deciding how to improve economic freedom in their own countries absent

the U.K.’s leadership within the EU.

Both the EU and U.K. will benefit from preserving to the largest extent possible the

open commercial relationship from which they have prospered for decades.

Continental European leaders would be well advised to look to the U.K. for best

practices to increase economic freedom.


(9th August 2016)

2. Post-Brexit: U.K. can lead Europe to greater economic

freedom

SUBJECT FROM

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The City of London: Vital to the EU Financial System

While the U.K.’s economy

accounts for only about

17.5 percent of total EU

gross domestic product

(GDP), approximately 40

percent of all euro-

denominated assets are

held or traded in the U.K.

This disparity highlights

the crucial role of British-

based finance in Europe.

In the aftermath of Brexit, European cities such as Paris and Frankfurt are unlikely

to be successful in tempting London-based financial firms to relocate. No other EU

country is likely to match the very high Index scores of the U.K. on Rule of Law

(ranked third in the world for property rights protection), Investment Freedom

(ranked second in the world), or Financial Freedom (ranked third in the world).

As The Wall Street Journal’s Jon Sindreu has noted, most “international financial

contracts are written in English law.”


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According to a 2014 report by Deloitte,

London is also the preeminent location for

the European headquarters of top global

companies. Approximately 40 percent of

the top 250 companies with global or

regional headquarters in Europe operate

out of London. In fact, London hosts five

times more companies than Paris, its next

closest rival.


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In addition, the U.K.’s high quality judicial system assures multinational companies

and international investors of impartiality and efficiency in cases of commercial or

investment dispute. The same certainly cannot be said of many of the other EU

countries. Worldwide confidence in the British legal system should ensure the future

vital role of London in providing financial services to EU governments, private

companies, and individuals, especially in areas such as debt issuance and debt

servicing.

The U.K. Led the Way—The EU Should Follow

The U.K. also ranked near the top in the EU for market openness in the 2016 Index.

The U.K. has long been a leader in expanding trade and investment among free

nations by reducing tariffs and other barriers to trade. British commitment to

openness led to initiatives such as Margaret Thatcher’s campaign for the Single

European Act (SEA) in 1986, aimed at removing non-tariff barriers and opening

more fully the EU’s internal market.

As as Dr. Ted Bromund of The Heritage Foundation has observed, the SEA

regrettably ended up being distorted by statist bureaucrats in Brussels. For this and

other reasons, U.K. voters unsurprisingly concluded that enough was enough and

voted to leave.

Conclusion and Recommendations

The average overall score for EU members in the Index of Economic Freedom, after

improving steadily between 1996 and 2010, has since stagnated. That score will

decline further after the U.K., an economic freedom leader, departs the EU. The

most constructive response by leaders of EU countries, in addition to crafting a

productive new commercial relationship with the U.K., would be to use Brexit to

advocate for a new wave of free-market reforms to build stronger, more dynamic

economies in Europe.

The EU’s fundamental economic problems are structural. Europeans could turn to

populists if they do not soon see improvements in their standards of living, but that

will occur only through higher productivity growth. Uniform, Brussels-imposed fiscal

policies for EU member states will not accomplish this, and will instead only worsen

the problem. Europe needs a reform strategy that increases competitiveness and

reduces market barriers.


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In particular, policymakers in EU member states should pursue policies that make

labor markets more flexible, including:

• Lowering marginal tax rates,

• Tightening criteria for determining benefits eligibility, and

• Reducing burdensome and restrictive employment-protection regulations.

Longer-term economic growth in the EU will undoubtedly benefit from an open

trading relationship with Britain. Liberalization of the financial services market will

benefit all parties, because European firms will still rely on London as the region’s

only global financial center. Rather than being threatened by the U.K.’s reliance on

the rule of law and wider dedication to economic freedom, EU member states

should see both as beacons of hope in an increasingly troubled world. If they do so,

they too can reap the benefits of freedom that Britain has long enjoyed

By Carmen Elena Dorobăț

A leaked memo allegedly belonging to the UK government purports to show the

chaos and uncertainty in which the British administration finds itself in trying to

deal with its exit from the European Union. It is rumoured that the additional work

required by the Brexit process will cost the taxpayer about £65 million, to be spent

on 500 related projects and anywhere between 1,000 and 30,000 new civil

servants. While the numbers in the memo—and even UK’s exit itself—are still in

doubt, the discussions around them offer a couple of interesting insights into the

workings of governmental bureaucracy.


(16th November, 2016)

3. Brexit and the

bureaucracy beast

SUBJECT FROM

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On the one hand, the Brexit process is bound to be painful, as it requires

disentangling British laws from the quagmire of European regulations that the UK

has adopted over the 43 years of its membership. Surely, as healthy as this is, it

will require additional manpower and funding in the short run. In hindsight, the only

way in which this costly process could have been avoided was not to join the EEC in

the first place. Otherwise put, bureaucracy must not be allowed to swell, it must be

nipped in the bud, as reducing it will only become increasingly difficult. In fact, the

costs of reducing bureaucracy will often act—though they should not—as a

disincentive to demand such a process.

On the other hand, a characteristic of bureaucratic system—and of the state

apparatus in general—is its ability to grow and even thrive in times of crisis. Even

when the crisis concerns the bureaucratic system itself. In this particular case, the

decision to leave the EU was motivated, in one form or another, by the

overburdening of UK’s internal administration (and thus of British taxpayers) by the

EU legislation and regulations.

And yet, the very first step the UK government took, even before triggering Article

50, was the creation of a Brexit department in the cabinet. A department which has

no means of calculating, in an economically rational way, the least costly exit

procedure, and which—by virtue of its bureaucratic nature—has all the incentives to

prolong the process indefinitely if possible, while allowing the bureaucratic

apparatus to bloat. Bureaucracy 1 – Taxpayer 0.

In the end, the UK might end up replacing European bureaucracy with a

homegrown version. Not that this will come as a surprise—it is, in fact, the more

likely outcome. As Mises pointed out, "In all countries with a settled bureaucracy

people used to say: The cabinets come and go, but the bureaus remain" (Mises,

Bureaucracy, p. 55).

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This year, Mises Institute Associated Scholar Per Bylund released The Seen, the

Unseen, and The Unrealized: How Regulations Affect Our Everyday Lives. We

recently spoke with Professor Bylund about his book and how the effects of

government regulation are more far-reaching and more damaging than many

people realize.

MISES INSTITUTE: Why is the concept of the “unseen” so important to

understanding the effects of regulation?

PER BYLUND: It is essential for understanding regulation, but the “unseen” is

actually fundamental for economic understanding and analysis in general. What’s

“unseen” is the proper benchmark. We need to consider both what didn’t happen

but would have happened.

Oftentimes people, including so-called experts, compare apples and oranges by

looking at data “before” and “after” an event, for instance, when discussing the

effects of raising the minimum wage. So they might say that employment before

was similar to after the hike, and then conclude that the change had no effect. But

this is wrong, because there are plenty of changes in the economy that took place

between the before and after — not only the minimum wage. So in order to figure

out the effect of the minimum wage specifically, we must compare the “after”

situation with what would have been had there been no minimum wage hike — the

unseen.

This of course applies to any change in the economy, and not only regulation.

Bastiat, in his classic essay on the broken window fallacy, discusses the effects as a

boy smashes a window. But in modern state-planned economies, regulation is by

far the most common and most destructive change, so that’s where we also find

most analysis. As economic analysis is used to assess the effects of regulations

before they’re implemented, it’s important to use the proper comparisons — the

seen and the unseen, not the seen at different times (before and after).


(26th December, 2016)

4. How government regulation

makes us poorer?

SUBJECT FROM

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MI: You also employ the concept of “the unrealized.”

PB: The unrealized is really my own extension to Bastiat’s famous analysis, and it

is intended to redirect our attention from the macro level of the economy to how

changes affect individuals — and especially what options they’re presented with.

The point of the book is to show that regulating one part of the economy will have

effects throughout the economic system, and that this type of artificial restriction

will lead to some people being stripped of the choices they otherwise would have.

I exemplify this with the sweatshop, which is often argued against using only “the

seen.” The working conditions are terrible in a sweatshop, especially compared to

our cushy jobs in the West. Ben Powell and others have done great work pointing

out that there’s also the unseen in the sense that without the sweatshop those

workers would be in even worse shape. In fact, they are very eager to get jobs in

the sweatshop because they’re so much better than all other options they have.

With the “unrealized,” however, I think we get a more nuanced picture. I argue that

the reason the sweatshop workers make a choice between the hard work in a

sweatshop, and something that is much worse, is regulation. Had this been a free

market, then there would likely have been many businesses offering jobs in

sweatshops, and they would probably compete with each other by offering higher

pay, better work conditions, and so on. There’s obviously money to be made from

running sweatshops, so why don’t more businesses do this?

The existence of a sweatshop shows that the market is sufficiently developed to

support it: the technology and capital structure, including transportation and supply

chains, are obviously there. The economic conditions also speak in favor of

sweatshops over toiling in the fields and the other much worse options sweatshop

workers are presented with. The workers are more productive in sweatshops. So

there’s really no reason why there wouldn’t be competition for their labor by several

sweatshops. But, the many options that should be there aren’t.

So it’s likely that something is restricting the creation of these other options. Those

other businesses that never came to be are the unrealized alternatives, and the

argument in the book is that these options would have been available had it not

been for regulation.


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Moreover, those regulations can really be very distant from these workers, since a

restriction redirects economic actors to other, and comparatively less valuable,

actions. In turn, the regulations have ripple effects — a type of Cantillon effect, you

might say — throughout the economy as seen actions replace the unseen, or what

should have been.

These other things happen instead of what should have happened, if actors had not

been arbitrarily restricted by regulations. But, these “other things” are suboptimal

and harm people since they’re not what people would have chosen to do in the

absence of the regulations. In this sense, a regulation anywhere in the economy

causes harm, and this harm primarily affects those with little or no influence over

policy or the means to avoid it. So the major harm is on poor people in poor

countries, even where regulations appear to be limited to relatively rich people in

rich countries.

MI: In the case of a business being regulated, how much of that burden falls

directly on that business? Are other groups — such as the customers — affected by

the regulations also?

PB: It really depends on the business. Regulations make it costlier to act — and

therefore some actions are no longer profitable when they would have been

otherwise. So, for those businesses that lack political influence and aren’t the most

effective, a regulation may decide whether there is a business or not. At the same

time, businesses that survive the regulation might benefit from a protected

situation because the regulation raises barriers to entry. This is why, for instance, it

is rational for Walmart to support a high minimum wage — it will hurt Walmart’s

competitors more than it hurts Walmart.

The real losers are common people who, as consumers, do not get the valuable

goods and services they otherwise would have, and, as producers, cannot find the

jobs they otherwise would. The winners are the incumbents, at least short-term,

and — as always — the political class.

MI: You refer to markets using terms like “messy,” “approximate,” and “imperfect.”

Isn’t this an argument against markets? Can’t government regulation give us more

rational results?


20

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government planning might be doable in an economy with fixed boundaries. That

is, where there is no growth, no new value creation, and thus the “extent” of the

market stays the same. But there are no such economies in the real world, and I’m

not sure it is even possible long-term. An economy is really the combined uses of

resources devoted to satisfying wants. So, it is inconceivable to have an economy

that doesn’t get better over time — or which malfunctions and declines. In an

entrepreneurially driven and creative market process, there is no basis for planning

an economy through a governmental central plan. I elaborate on how this process

of market expansion happens in my previous 2016 book, The Problem of

Production: A New Theory of the Firm (Routledge).

Growth and entrepreneurship in a market is not so much about allocating existing

resources within the market as it is about speculating about how resources can be

created and used in more valuable ways. The market is a creative enterprise always

aiming for the future and satisfying more wants and newly discovered wants. Thus,

a governmental regulator or central planner has no data to use in making a

“rational” plan because the data doesn’t exist yet. That’s the problem with central

planning — you cannot plan with only unknowns and unknowables. That’s also why

markets are messy, but decentralized decision-making within a profit-and-loss

system generates the very structure needed for such decision-making.

MI: But in a purely unregulated economy, won’t businesses exploit workers?

PB: I conclude exactly the opposite in the book. There’s a case to be made for

Marxist-type exploitation of workers in factories, perhaps more so in countries

where there are sweatshop-style factories than elsewhere. But, the reason for this

exploitation is regulation. Had the workers not been stripped of their choices — the

unrealized — they wouldn’t be satisfied with the sweatshop jobs they’re relatively

content with as things are today. Exploitation is not so much a result of capitalists

paying workers less than they otherwise could have been paid. It is a result of the

workers’ options having been taken away. The business with a sweatshop in a poor

country isn’t the party taking away workers’ options. The business is the one giving

workers an option. It’s not as good as it otherwise would’ve been, but that’s not

necessarily the fault of the business. What hurts the workers — and keeps them

poor by not putting sufficient competitive pressure on the business — is regulation,

which restricts competition, and thus empowers business at workers’ expense.


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So the issue of exploitation, and especially how to get rid of it, is a matter of finding

the real and ultimate cause of the situation. It’s usually not a matter of employers

having “power” over the worker. Such power does not occur naturally, but is

caused by something, and my argument suggests that the employers’ economic

power is a symptom, but not the cause. The real cause is government regulation.

By John W. Whitehead

“As I look at America today, I am not afraid to say that I am afraid.”—Former

presidential advisor Bertram Gross.

As history teaches us, if the people have little or no knowledge of the basics of

government and their rights, those who wield governmental power inevitably wield

it excessively. After all, a citizenry can only hold its government accountable if it

knows when the government oversteps its bounds.

Precisely because Americans are easily distracted—because, as study after study

shows, they are clueless about their rights—because their elected officials no longer

represent them—because Americans have been brainwashed into believing that

their only duty as citizens is to vote—because the citizenry has failed to hold

government officials accountable to abiding by the Constitution—because young

people are no longer being taught the fundamentals of the Constitution or the Bill of

Rights, resulting in citizens who don’t even know they have rights—and because

Americans continue to place their trust in politics to fix what’s wrong with this

country—the American governmental scheme is sliding ever closer towards a

pervasive authoritarianism.

(8th November, 2016)

5. Seven principles for

free government

SUBJECT FROM

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This steady slide towards tyranny, meted out by militarized local and federal police

and legalistic bureaucrats, has been carried forward by each successive president

over the past fifty years regardless of their political affiliation.

Big government has grown bigger and the rights of the citizenry have grown

smaller.

However, there are certain principles—principles that every American should

know—which undergird the American system of government and form the basis for

the freedoms our forefathers fought and died for.

The following seven principles are a good starting point for understanding what free

government is really all about.

First, the maxim that power corrupts is an absolute truth. Realizing this,

those who drafted the Constitution and the Bill of Rights held one principle

sacrosanct: a distrust of all who hold governmental power. As James Madison,

author of the Bill of Rights, proclaimed, “All men having power ought to be

distrusted to a certain degree.” Moreover, in questions of power, Thomas Jefferson

warned, “Let no more be heard of confidence in man, but bind him down from

mischief by the chains of the Constitution.” As such, those who drafted our

founding documents would see today’s government as an out-of-control,

unmanageable beast.

The second principle is that governments primarily exist to secure rights,

an idea that is central to constitutionalism. In appointing the government as

the guardian of the people’s rights, the people give it only certain, enumerated

powers, which are laid out in a written constitution. The idea of a written

constitution actualizes the two great themes of the Declaration of Independence:

consent and protection of equal rights. Thus, the purpose of constitutionalism is to

limit governmental power and ensure that the government performs its basic

function: to preserve and protect our rights, especially our unalienable rights to life,

liberty and the pursuit of happiness, and our civil liberties. Unfortunately, the

government today has discarded this principle and now sees itself as our master,

not our servant. The obvious next step, unless we act soon, is tyranny.


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The third principle revolves around the belief that no one is above the law,

not even those who make the law. This is termed rule of law. Richard Nixon’s

statement, “When the President does it, that means it is not illegal,” would have

been an anathema to the Framers of the Constitution. If all people possess equal

rights, the people who live under the laws must be allowed to participate in making

those laws. By that same token, those who make the laws must live under the laws

they make. However, today government officials at all levels often act as if they are

royalty with salaries and perks that none of the rest of us are afforded. This is an

egregious affront to the citizenry.

Fourth, separation of powers ensures that no single authority is entrusted

with all the powers of government. People are not perfect, whether they are in

government or out of it. As history makes clear, those in power tend to abuse it.

The government is thus divided into three co-equal branches: legislative, executive

and judicial. Placing all three powers in the same branch of government was

considered the very definition of tyranny. The fact that the president today has

dictatorial powers would have been considered a curse by the Framers.

Fifth, a system of checks and balances, essential if a constitutional

government is to succeed, strengthens the separation of powers and

prevents legislative despotism. Such checks and balances include dividing

Congress into two houses, with different constituencies, term lengths, sizes and

functions; granting the president a limited veto power over congressional

legislation; and appointing an independent judiciary capable of reviewing ordinary

legislation in light of the written Constitution, which is referred to as “judicial

review.” The Framers feared that Congress could abuse its powers and potentially

emerge as the tyrannous branch because it had the power to tax. But they did not

anticipate the emergence of presidential powers as they have come to dominate

modern government or the inordinate influence of corporate powers on

governmental decision-making. Indeed, as recent academic studies now indicate,

we are now ruled by a monied oligarchy that serves itself and not “we the people.”


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Sixth, representation allows the people to have a voice in government by

sending elected representatives to do their bidding while avoiding the

need of each and every citizen to vote on every issue considered by

government. In a country as large as the United States, it is not feasible to have

direct participation in governmental affairs. Hence, we have a representative

government. If the people don’t agree with how their representatives are

conducting themselves, they can and should vote them out. However, as the

citizenry has grown lazy and been distracted by the entertainment spectacles of

modern society, government bureaucrats churn out numerous laws each year

resulting in average citizens being rendered lawbreakers and jailed for what used to

be considered normal behavior.

Finally, federalism is yet another constitutional device to limit the power of

government by dividing power and, thus, preventing tyranny. In America,

the levels of government generally break down into federal, state and local

branches (which further divide into counties and towns or cities). Because local and

particular interests differ from place to place, such interests are better handled at a

more intimate level by local governments, not a bureaucratic national government.

Remarking on the benefits of the American tradition of local self-government in the

1830s, the French historian Alexis de Tocqueville observed:

Local institutions are to liberty what primary schools are to science; they put

it within the people’s reach; they teach people to appreciate its peaceful

enjoyment and accustom them to make use of it. Without local institutions a

nation may give itself a free government, but it has not got the spirit of

liberty.

Unfortunately, we are now governed by top-heavy government emanating from

Washington DC that has no respect for local institutions or traditions.

These seven vital principles have been largely forgotten in recent years, obscured

by the haze of a centralized government, a citizenry that no longer thinks

analytically, and schools that don’t adequately teach our young people about their

history and their rights.

Yet here’s the rub: while Americans wander about in their brainwashed states, their

“government of the people, by the people and for the people” has largely been

taken away from them.


25

Libertas The answer: get un-brainwashed.

Learn your rights.

Stand up for the founding principles.

Make your voice and your vote count for more than just political posturing.

Never cease to vociferously protest the erosion of your freedoms at the local and

national level.

Most of all, do these things today.

If we wait until the votes have all been counted or hang our hopes on our particular

candidate to win and fix what’s wrong with the country, “we the people” will

continue to lose.

Whether we ever realize it not, the enemy is not across party lines, as they would

have us believe. It has us surrounded on all sides.

Even so, we’re not yet defeated.

We could still overcome our oppressors if we cared enough to join forces and

launch a militant nonviolent revolution—a people’s revolution that starts locally and

trickles upwards—but that will take some doing.

It will mean turning our backs on the political jousting contests taking place at all

levels of government and rejecting their appointed jesters as false prophets. It will

mean not allowing ourselves to be corralled like cattle and branded with political

labels that have no meaning anymore. It will mean recognizing that all the evils

that surround us today—endless wars, drone strikes, invasive surveillance,

militarized police, poverty, asset forfeiture schemes, overcriminalization, etc.—are

not of our making but came about as a way to control and profit from us.

It will mean “voting with our feet” through sustained, mass civil disobedience.

As journalist Chris Hedges points out, “There were once radicals in America, people

who held fast to moral imperatives. They fought for the oppressed because it was

right, not because it was easy or practical. They were willing to accept the state

persecution that comes with open defiance. They had the courage of their

convictions. They were not afraid.”

Ultimately, as I make clear in my book Battlefield America: The War on the

American People, it will mean refusing to be divided, one against each other, by

politics and instead uniting behind the only distinction that has ever mattered: “we

the people” against tyranny.

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By Juan Carlos Hidalgo

Fidel Castro was surely the most influential figure in Latin American politics in the

second half of the 20th century. He was also the most ominous one. His legacy

goes beyond subjugating and impoverishing Cuba for over 50 years to also inspiring

and sponsoring armed insurgencies throughout the region that cost the lives of

hundreds of thousands of Latin Americans.

From early on, Castro was obsessed with the Unites States. When he was 14 years

old, he wrote an awkward fan letter to President Franklin Roosevelt congratulating

him on his re-election and asking him for a $10 bill. However, his youthful

admiration turned into antagonism in adulthood. Some people believe that his

introduction to Marxist ideas was responsible for this change in attitude; others

claim that Castro was simply a narcissist troublemaker that found in communism an

ideal political system to exert total control of Cuba, maintain power and purge

political rivals.

Whether a Marxist by conviction or opportunism, Castro seized power in 1959 and

successfully imposed the Stalinist regime in Cuba that remains to this day. During

the Cold War, the massive subsidies he received from the Soviet Union contributed

to the survival of his regime while Cuba rapidly turned into a basket case. In return,

Castro devoted his attention to exporting his revolution by financing left-wing

guerrillas in other Latin American countries. Nearly all of these insurgencies failed

to topple their respective governments — with the exception of the Sandinistas in

Nicaragua — but still thousands were killed in the process.


6. Castro’s legacy

(26th November 2016)

SUBJECT FROM

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The collapse of the Soviet Union didn’t mean the end of the Castro dictatorship as

many hoped. But it did bring the Cuban economy to its knees. When I visited

Havana in 2007, locals told me how widespread hunger was during the so-called

“Special Period” of the early 1990s. Castro dealt with the dire economic situation by

reticently loosening the grip of the government on the economy. But these timid

measures were quickly reversed a few years later when Castro found a new patron

— and unconditional ally — in Hugo Chavez. At its height a few years ago, it is

estimated that the subsidy that Venezuela’s subsidy to Cuba represented 20

percent of the island’s economy — higher than the assistance it once received from

Moscow.

Washington’s clumsy handling of Fidel Castro turned the despot into a hero in the

eyes of many Latin Americans. The Bay of Pigs invasion, the CIA plots to

assassinate him and the 56-year-old trade embargo are perceived as heavy-handed

efforts of the American Goliath to subdue the Cuban David. In the last decade, with

the ascendancy of left-wing governments in Latin America, and with U.S. influence

dwindling in the region, Cuba has seen its star power rise. The island even hosted

all of Latin America’s heads of state in a summit in 2013 — whose declaration

cynically called to strengthen democracy and human rights in the region.

Despite ceding power to his septuagenarian little brother Raul in 2006 after a still-

undisclosed illness, Fidel remained a strong force within the regime. Some claim

that his mere physical presence dissuaded Raul from pushing meaningful

liberalizing reforms aimed at resurrecting the dilapidated economy. Instead, the

limited measures implemented so far by the government seem more focused on

keeping the economy — and thus the regime — afloat while preventing Cubans

from becoming prosperous.

However, Castro’s death doesn’t imply a green light for liberalization in Cuba, either

economic or political. If anything, we should expect an increase in repression

against dissidents in the short term as the regime tries to control the repercussions

of the death announcement.


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Washington’s ability to influence these events is limited. The Obama administration

did right by shifting an approach toward Cuba that failed to bring democracy to the

island and instead provided Havana with an excuse to portray itself as the victim of

U.S. aggression. But there is no reason to believe that U.S. engagement will

significantly impact the regime’s attitudes on human rights and democracy. Fidel’s

totalitarian dream will outlive him at least in the short term.

In 2010, asked by The Atlantic’s Jeffrey Goldberg whether his economic model was

still worth exporting to other nations, a frail and suddenly candid Fidel Castro said

that “The Cuban model doesn’t even work for us anymore.” That reality had been

painfully evident for several decades. And yet, the revolution was never about

bringing prosperity to Cubans. It was always about Fidel himself.

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Portuguese Institute for Economic Freedom

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newsletter-winter 2016-2017

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